May 10, 2023
Russell Braiden

How Does Equity Release Work?

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How Does Equity Release Work?

What is Equity Release?

Equity release is a way for homeowners, over the age of 55, to release cash from their property. How much you can release depends upon the market value of your home and how old you are. You can benefit from either having the cash as one lump sum, or smaller, regular payments.

How Can I Use the Money from Equity Release?

You can choose how you’d like to use the money you release but it can be used for many things including:

  • Travel
  • Carrying out home improvements or adaptions
  • Paying off debt
  • Helping family on to the property ladder
  • Pay for private medical bills or for home care

The lender you use can also give you the ability to protect inheritance for your family, from the home’s value. However much you choose to protect, won’t be involved when the amount you borrow is calculated. We can provide you with further guidance on this.

What are the Benefits of Equity Release?

There are many advantages to releasing equity from your property, including:

  • You can remain in your home
  • The money released is tax-free
  • You can protect your family’s inheritance
  • You can benefit from 'no negative equity', which means you will never owe more than the property’s value
  • You don’t need to pay back the loan until you are moving into long-term care or pass away.

What Are the Different Types of Equity Release?

There are two main equity release product options, which are:

Lifetime Mortgage: This is the predominant form of equity release. Lifetime mortgages are secured on your home, whilst you still keep ownership of it. You have the choice of making repayments, or simply allowing the interest to roll over. The loan will then be paid back upon death or when the borrower moves into long term care.

Home Reversion Plan: This means that you sell all or part of your property to a home reversion provider, who will then either give you regular payments or a lump sum. You can still stay in your home until you pass away but you are obligated to insure and maintain it. You can also allocate a part of the property for another use, such as inheritance, by only selling part of it.  The amount of property you keep will stay the same, even if the value of the property changes, or you decide to release more equity from it. When the final borrower has passed away, the proceeds of the sale are then shared depending upon the remaining percentages that are owned.

Equity Release Questions and Answers

How old do I need to be for equity release?

To be eligible for equity release, you must be a minimum of 55 hears old. However, this can depend upon your provider. There is no official upper age but this may also be dependent upon the provider.

How long is the equity release process?

The process normally takes between 8-12 weeks, though it will depend on the service and who is providing it.

How do I repay equity release?

Generally, equity release is paid once your property has been sold after you either move into long-term care, or you pass away. You can also choose to pay the interest early. It is worth knowing that different products will have different restrictions on how much can be repaid and how often you can make repayments. We can help you find the ideal solution for your needs.

What is a no negative equity guarantee?

This means that when you sell your property, and the relevant fees have been paid, that if the leftover amount isn’t enough to repay the loan to your provider, you won’t be obligated to pay any more.

What’s the interest rate on equity release or lifetime mortgages?

There are no regular repayments on a lifetime mortgage, so the interest accrues on the loan every year and is then paid when your property is sold.

Should I have equity as a lump sum or regular payments?

When you get a lifetime mortgage, you have the choice of having it either as a lump sum or having regular small payments. This means that instead of one large amount, you will only pay interest on what you need to borrow.

How much does equity release cost?

Equity release may incur various costs including:

  • Legal fees
  • Arrangement fees
  • Valuations fees
  • Broker fees
  • Insurance
  • A completion fee

The costs could be up to £3,000. There may also be a separate early repayment charge.

How Do I Arrange Equity Release?

If you would like to answer the question 'how does equity release work?', or to start the process, contact the friendly team at Transparent Mortgage Services today. We will find the ideal solution for your specifications and provide you with in-depth financial advice. We will also make the process streamlined and simple for you.

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